In normal years, the Colorado real estate market often falls into a deep sleep from mid-November through the first week of January.
This, however, is not a normal year!
The number of homes under contract in the Denver MLS increased by 15% during November compared to last year, while listing inventory plummeted 36%. A total of 2,710 homes went under contract over the past 30 days, compared to 2,342 during the same period last year. The overall listing inventory in the Denver MLS as of November 30 stands at 8,847 homes, down from 12,634 at the end of November in 2011 (and down from 19,881 in November of 2010).
As I have written about over and over on this blog throughout 2012, the ingredients in our market’s amazing turnaround are as follows:
No more foreclosures. In 2007, the Denver metro area had more than 27,000 foreclosures. This year, that number will probably fall right near 7,000, which is completely normal for a metropolitan area this size. Everyone who was going to lose a home due to subprime financing or Great Recession job loss has already lost it, save for a few stragglers and those whose foreclosures have been delayed for months or years due to the foreclosure moratorium fiasco.
Hardly any new construction. Three-quarters of the builders in Colorado in 2006 were gone by the end of 2009, wiped out by the recession and the collapse of the commercial lending industry. We stopped building homes for nearly four years as the population continued to grow by close to 2% (100,000 new residents) per year.
First-time buyers. With rates in the 3’s and rents rising at an historic pace, first-time buyers are out in droves, prompted by their parents to “buy now” while affordability is so ridiculously high.
A lousy economy. How does a lousy economy contribute to a surging housing market? Because many people who have seen their wages drop or whom have lost jobs simply aren’t moving. Not moving = no inventory.
The return of “first generation” foreclosure buyers. In 2006 and 2007 alone, over 50,000 metro area households lost homes to foreclosures. Today, after five years of credit restoration, a good percentage of these former owners are coming back into the market… smarter, wiser, and probably at a lower price point than during the boom.
What it means is that prices are now rising faster (especially in the lower price brackets) than they have at any time in the past eight to 10 years. Case-Shiller has reported year-over-year price appreciation of 6.7% for the Denver metro area; CoreLogic reported 9.3% price growth; and just this week, Zillow blasted the appreciation conversation into a whole new stratosphere, reporting 10.8% year-over-year price gains for Denver.
Now hold on. Take a deep breath. Some of this chatter is out of control. Zillow’s numbers, for example, are being heavily slanted by repeat sales involving foreclosures that were purchased at steep discounts in 2008 or 2009 and then resold in 2012. Trashed foreclosures that were selling for $130,000 two years ago are being flipped in the $200s today, but that doesn't mean prices have appreciated 50%. It means a lot of former junk is being reintroduced to the market in pristine condition, with much of the value gain coming from improvements.
But the overall upward trend is undeniable. And if you have been working with buyers (many of whom are finding that it is darn near impossible to get a nice home under contract under $400,000 without immediate competition), you know that 2012 is nothing like the markets of 2007, 2008, 2009, 2010 or 2011.
What does it mean for 2013? If interest rates remain low, and if the fiscal cliff negotiations are resolved in a fairly efficient manner, it likely means that higher prices and lower inventory are here to stay. Buyers are going to have to be willing to pay more, or get less, because the demand for entry-level homes isn’t going to let up any time soon.
Although it’s frustrating for some, it’s good for many more. Homeowners in Denver are seeing their equity grow after years of tepid or non-existent appreciation.
Heading into 2013, that’s something to be thankful for.